1960 (9) TMI 59 - SC - VAT and Sales Tax

Supreme Court: Deposits by companies contingent on tax liability not payable to government

The State of Mysore and Another Versus Mysore Spinning and Manufacturing Co., Ltd. and Another  

The State of Mysore and Another Versus Mysore Spinning and Manufacturing Co., Ltd. and Another   - [1960] 11 STC 734 (SC)   Issues involved:1. Proper construction of section 11 of the Mysore Sales Tax Act, 1948.2. Whether amounts collected as 'deposits' by companies are payable to the government under section 11(2) of the Act.3. Interpretation of the phrase 'by way of tax under this Act' in section 11(1) and (2).4. Constitutional validity of section 11(2) in light of Articles 19(1)(f) and 31 of the Constitution.Issue-wise detailed analysis:1. Proper construction of section 11 of the Mysore Sales Tax Act, 1948:The appeals centered on the interpretation of section 11 of the Mysore Sales Tax Act, 1948. Section 11(1) prohibits unregistered dealers from collecting tax and allows registered dealers to collect tax under prescribed conditions. Section 11(2) mandates that any amount collected by way of tax, in excess of the tax liability, must be paid to the government. The High Court interpreted this to mean that only amounts lawfully levied under the Act should be paid to the government, rejecting the notion that any amount collected in the guise of tax falls under this provision.2. Whether amounts collected as 'deposits' by companies are payable to the government under section 11(2) of the Act:The companies involved collected amounts provisionally as deposits to cover potential tax liabilities, with the understanding that these amounts would be refunded if no tax was due. The Sales Tax Officer demanded these amounts under section 11(2), but the High Court ruled in favor of the companies, stating that these were not 'collections' by way of tax but conditional deposits. The Supreme Court agreed, noting that these amounts were held as deposits and not as tax collections, and thus, were not payable to the government under section 11(2).3. Interpretation of the phrase 'by way of tax under this Act' in section 11(1) and (2):The High Court and the Supreme Court interpreted the phrase 'by way of tax under this Act' to mean amounts lawfully levied under the Act. The Supreme Court emphasized that amounts collected as deposits, with a clear condition for refund, do not qualify as 'collections' under section 11(2). This interpretation was consistent with the High Court's reliance on the Madras High Court's decision in Tata Iron & Steel Co. Ltd. v. The State of Madras, which held that only amounts collected on taxable transactions under the Act fall within this provision.4. Constitutional validity of section 11(2) in light of Articles 19(1)(f) and 31 of the Constitution:The respondents argued that if section 11(2) were interpreted to require payment of amounts not lawfully charged as tax, it would violate Articles 19(1)(f) and 31 of the Constitution. However, the Supreme Court did not find it necessary to rule on this constitutional issue, as it concluded that the amounts in question were not 'collections' by way of tax under section 11(2). The Court reserved judgment on the constitutional validity of section 11(2) for a future case where it would be directly relevant.Conclusion:The Supreme Court dismissed the appeals, upholding the High Court's interpretation that amounts collected as deposits, conditional on the outcome of tax liability, are not payable to the government under section 11(2) of the Mysore Sales Tax Act, 1948. The Court did not address the broader constitutional questions, as they were not necessary for the resolution of these specific cases.